Market patience with U.S. and UK could change: OECD chief

By IBT Staff Reporter On 07/15/10 AT 7:24 AM

Markets are relatively patient about the budget-cutting efforts of Britain, the United States, Germany and Japan, but that could change if governments are slow to act, OECD chief Angel Gurria said on Thursday.

Asked why the British government was still able to borrow at a fairly low rate, despite a record peacetime budget deficit, Gurria said: We don't want ... the advantage the UK has today to turn into a problem because it is borrowing too much or because its borrowing is considered unsustainable.

He told BBC radio: The UK, the United States, Germany and Japan are four countries for which the market has more patience, more tolerance, but that can also finish if they don't see them taking very definitive and serious steps to correct it.

Britain's coalition government announced spending cuts and tax rises in an emergency budget in June designed to cut the deficit to almost nothing in five years.

Nevertheless, ratings agency Standard & Poor's said on Monday Britain remained in danger of losing its triple A rating.

Before the budget, the Organization for Economic Cooperation and Development (OECD) had urged Britain to announce a strong and credible medium-term plan to cut the deficit or risk driving up inflation and damaging the recovery.

The BBC said Gurria was visiting Britain for talks with Prime Minister David Cameron and other ministers.

Gurria denied that the OECD was advocating synchronized austerity by Western governments that might jeopardize growth. We are advocating a new balance ... between keeping the recovery forces going and at the same time acknowledging that ... we have to address this question of the huge, unprecedented deficits and the very fast accumulation of debt, he said.

Spending cuts and tax rises to reduce deficits did not have to begin immediately, he said.

But you have to make a credible statement, which is what happened in the UK, he said.

Asked if countries with less severe deficit problems such as Germany risked hurting the global economy through austerity measures, Gurria said: This is looking at the matter with extreme simplicity but that doesn't correspond to reality.

Growth in the world economy would come from innovation, adopting green growth policies and from not slashing budgets for education or for research and development.

He urged countries to fight (trade) protectionism with all our forces, adding: With a mediocre growth scenario, with a high unemployment scenario and with a high deficit scenario it's very easy to fall into the temptation of making protectionist initiatives or speeches.

A white Fiat van rammed into pedestrians outside enjoying a late afternoon stroll on Las Ramblas in Barcelona on Thursday killing at least 13 people and leaving hundreds injured. The Islamic State group claimed responsibility for the attack.